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Explain the impact of the rupee-dollar exchange rate on inflation, economic growth, and competitiveness of Indian industry.

Tags: money, careers, economic growth
Asked by shweta singh, 12 Feb '10 12:24 am
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The USA economy is slowly recovering from economic downturn and hence dollar gets weaker against all curriences. This results in Rupee getting stronger and hence export oriented Indian companies may face a loss due to currency fluctuation. On the other hand as dollar gets weaker OIL IMPORT Bill gets reduced as we have to pay lessor for our imports. Also many BLUE CHIP international Indian companies borrow dollars to get Foreign exchange fluctuation benefit. The other side effect of Rupee getting stronger against dollar is HUGE FII inflows in Indian sharemarket and bondmarket. This is also known as "dollar carry trade" i.e. buy in $ now and then sell off after dollar gets weaker so as to receive more dollars on sale proceeds converted from Rs to $. As a result of heavy inflows sharemarket rises sharply and other markets like Real estate and Bullion market also rises as profits booked from sharemarket is blocked in other markets. Economy grows rapidly due to huge capital inflows and ...more
Answered by Kuldeep Khatau, 12 Feb '10 12:38 am

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